Eskom stifles GDP growth by refusing to sign up IPPs

International operators may withdraw from SA.

A total of 37 renewable independent power producers (IPPs) are still committed to the bids they submitted to government, but need resolution of the impasse with Eskom in this quarter, says Brenda Martin, chairperson of the SA Renewable Energy Council (SAREC).

Some are already compiling plans to withdraw from the country that would be triggered, should Eskom persist with its resistance to the department of energy’s Renewable Energy Independent Power Purchase Programme (REIPPP).

Eskom has been stalling the signing of power purchase agreements with the preferred bidders in the REIPPP bid windows 3.5, 4 and 4.5, citing an oversupply of electricity from its own generation plants and what it considers to be the high tariffs agreed upon with IPPs.

Eskom acting CEO Matshela Koko recently stated that the utility is prepared to sign power purchase agreements with IPPs at 62c/kWh or less.

Martin however says Eskom is not entitled to renegotiate tariffs with preferred bidders that have been agreed upon with the department of energy during its trusted and lawful procurement process.

SAREC obtained a legal opinion from Webber Wentzel senior counsel David Unterhalter that supports this position.

According to Martin only two of the 37 projects could get even close to the 62c/kWh mark anyway.

The average tariff for solar photovoltaic projects in bid round 4 was 91c/kWh, for wind 75c/kWh and for concentrated solar power in the expedited bid window (4.5) R1.25/kWh. It is only in the expedited round that the average tariffs for wind and solar PV were at 62c/kWh but these tariffs are in April 2016 terms, in other words they are in real terms higher than 62c/kWh in current terms.

She says Eskom’s refusal to sign the power purchase agreements stands in the way of financial closure on the projects and construction can therefore not start.

In the earlier bid rounds, when Eskom cooperated, the projects reached financial close about a year after the submissions of bids. One would expect the process to be progressively quicker as parties learn along the way, but for bid round 4 it is now 21 months later and bidders are still waiting for Eskom to come to the table.

Martin has over the last two weeks been visiting IPPs to consult them about the way forward. She says they are unanimous that they don’t want to sue Eskom, whom they regard as their client. “We want to work with government on the basis of the legal opinion,” she says.

IPPs can withdraw their bids at any time up to financial close, but thus far everyone she spoke to is still committed. To prepare and submit a bid costs millions of rand and a lot of work goes into it. She says bidders feel if they withdraw now, their investment will be wasted.

However they cannot wait forever and need movement from Eskom in this quarter. The cost of equipment and other costs on which the bids are based, change and international investors are increasingly concerned about the future of the South African renewable energy programme.

Martin says the 37 projects represent a total investment of R50 billion, 13 000 jobs in construction and a further 2 000 permanent jobs over the lifetime of the projects of 20 years.

According to numbers from the department of energy’s IPP office 2 738 MW of the 14 725 MW renewable generation capacity that the minister of energy Tina Joemat-Pettersson has determined should be procured, was in operation by September last year. By that time a total of 6 377 MW had been procured.

The office had received and evaluated 460 bids, selected a total of 102 preferred bidders and attracted a total of R194 billion in investment.

Since the start of the programme the average tariff the department agreed upon with successful bidders has dropped from R3.65/kWh for solar photovoltaic in bid window 1 to 62c/kWh in the expedited round, from R1.51/kWh to 62c/kWh for onshore wind, and from R3.55/kWh to R1.25/kWh for concentrated solar power.

In percentage terms average solar photovoltaic tariffs dropped by 83%, wind by 59% and concentrated solar by 65%.

IPPs have reached commercial operation as scheduled and delivered critical generation capacity quickly and generally on time. In fact, 98% of the IPPs have reached commercial operation as scheduled, according to the IPP office.

Martin emphasises government’s strategy to use the REIPPP as a catalyst for local economic development as the projects are spread all over the country, mostly in rural areas.

So far a total of R32.1 billion has been spent on local content and the number is set to rise to R42.5 billion from current active projects.

By June 2016 R216 million has been spent on social-economic development since November 2013 and a total of R9.2 billion has been committed by the 64 active projects for that purpose over their 20 year lifetimes.

By June 2016 the first 44 IPPs have spent R66.1 million on enterprise development and over the lifetime of the projects they have committed R2.6 million.

The commitment to community development over the 20 year period is R23.1 billion. 24 838 construction jobs and 1 952 operational jobs have been created in only three years, according to data from the IPP office.

Eskom’s position casts a shadow of uncertainty over the whole programme says Martin. Prospective bidders for the announced gas-to-power and the coal IPPs are also concerned about Eskom’s stance.

“It is extremely costly to prepare one of these tenders and investors are asking whether it is worthwhile,” Martin says.

Eskom’s Khulu Phasiwe said the utility would be meeting with representatives of some of the renewable IPPs soon. He said Eskom is committed to the IPPs it has contracted with and will sign contracts with those preferred bidders who are close to the 62c/kWh tariff. If the tariffs are too high, especially if it is above R1.00/kWh Eskom fears it would hurt its finances and would seek to renegotiate, he said.

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Renewables have one main problem, the suppliers can not and will not guarantee uninterrupted supply while Eskom has to provide uninterrupted supply. Coal-fired power stations can not be switched on and off instantly when the wind dies or suddenly comes back.

Structuring the renewables sector to supply users which can live with interruption would be something to look at. Load shedding proved that life mostly carried on without power. Key strategic electricity users can be identified and Eskom capacity set to a level to them “uninterrupted”. The “interrupted” users can wait for a coal fired utility to come on if necessary. No?

…. a level to keep them “uninterrupted”.

One evening we went to a restaurant and after placing the order the power went off due to unplanned load shedding. The ten minute drive home turned into one hour, every robot was gridlocked. Several restaurants simply shut down during the planned load shedding times. Without reliable shedding timetable they could even go bankrupt and relying on renewables would not allow a planned shedding schedule. I guess you would not mind if in the middle of your dinner party preparation the power dropped and after a few hours it came back? There are several articles about ramp-up times for coal-fired power stations. If the shutdown was a short one and the boiler is hot the start-up and synchronization might be only 2 hours, but if the boiler was allowed to cool down then it is several times longer. So if your power goes off in the evening because the wind generator stopped, you might only get back the supply in the morning.

This is true but that is why you want a mix of base load power and renewable power. Coal is dirty tech and the world is moving away from that, countries in Europe like Germany and Portugal have run uninterrupted on renewable for days (as reported) so how did they get it right? I know Gas is touted as a solution because it is apparently a quick start up and can plug the gaps, dilemma there is where do we source the gas from.

Also CSP has the ability to produce base load like energy due to them having a storage capacity, I think there was a CSP recently that ran for 9 days uninterpreted. I can’t remember the eact amount of time but the reality is there is a solution and clean energy seems to be working all over the world. China is busy installing Gigawatts of renewable energy so why is SA all of sudden against it? I mean the pricing for these plants went down by 70% odd across the technology and that is likely to continue whilst Eskoms coal fired plants are costing a lot more than expected and are way overdue. There is a balance that can be reached on this surely.

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